http://www.salon.com/tech/htww/?last_story=/tech/htww/2008/03/27/the_end_of_laissez_faire/
Misunderstanding the Economics Debate
I agree with some of the earlier posters that not only is Keynes always already there when any discussion of macro-economics takes place, we have institutionalized his basic theories into our economic system, so whichever party may dominate in a particular time period, Keynesian economics is what they oversee, whether the are consciously aware of it or not.
Capitalism have proven to be the most effective economic model because it is so good at co-opting the best ideas of competing economic ideologies and subsuming them under the general rubric we still call capitalism.
There is no serious debate any longer between pure laissez- faire capitalism versus economic-totalitarian communism. The debate now, similar to the gun control issue, is simply: What is the optimum amount of regulation?
The latest banking/financial fiasco gives those favoring more regulation of that (and other) industries a nice, fresh supply of ammunition. The esoterica which the banking, lending and "investment banking" sectors (Wall Street) dreamed up to fuel the housing bubble were nothing short of brilliant when things were going well; and being "new," many of the activities were subject to minimal regulation and oversight.
When the worm turned, it was not only those who most benefited from "derivatives"--Wall St. investment banks--who would have to pay the price for the collapse of the very sophisticated pyramid scheme: it was--and is!--society as a whole. The damage, if not contained, will spill over the walls of The Street and impact citizens (in many countries) who could arguably be characterized as innocent bystanders.
The conclusion: There was an inadequate oversight/regulatory apparatus in place to protect the public from over-zealousness in one particular industry, an industry of such importance that the public weal has been put in jeopardy.
No serious person argues for ZERO gun control. And so too, no serious person argues for or believes in pure laissez- faire economics anymore.
It's about defining that optimum in regulation of guns and the economy that people disagree about.
Showing posts with label Bear Stearns. Show all posts
Showing posts with label Bear Stearns. Show all posts
Wednesday, March 26, 2008
Monday, March 24, 2008
Sunday, March 16, 2008
JP Morgan Acquires Bear, Stearns
JP Morgan Chase Bank today bought the troubled Bear, Stears for $2 per share.
One month ago Bear, Stearns stock price was $80 per share.
Not even the SIF could save them.
(See below for info on SIF.)
The Federal Reserve Open Market Committee held an emergency meeting today which resulted in a cut of 3/4 of a point in the Discount Rate, the rate the Fed charges member banks to borrow from it.
These are actions indicative of the most serious financial crises since the Great Depression, and most of its facets have yet to emerge.
The Bush Administration has shown either a callous lack of concern for what it happening or complete imbecility!
One month ago Bear, Stearns stock price was $80 per share.
Not even the SIF could save them.
(See below for info on SIF.)
The Federal Reserve Open Market Committee held an emergency meeting today which resulted in a cut of 3/4 of a point in the Discount Rate, the rate the Fed charges member banks to borrow from it.
These are actions indicative of the most serious financial crises since the Great Depression, and most of its facets have yet to emerge.
The Bush Administration has shown either a callous lack of concern for what it happening or complete imbecility!
Saturday, March 15, 2008
Bear, Stearns Turns to Oil as Its Savior
Rumours swirl that the only entities capable of saving Bear, Stearns (BS) from being ingloriously dumped into the dustbin of Wall Street history are the Sovereign Investment Funds (SIF).
SIF--and their cousins, super-wealthy sheiks, sultans, emirs--have already participated in the mouth-to-mouth resuscitation required by Citigroup, Morgan, Stanley, UBS, Merrill Lynch and who knows how many other mega investment banks in the US and abroad.
The rescues have taken the form of these SIF injecting large amounts (billions of dollars) into the trouble institutions by purchasing equity stakes--ownership stakes--in them.
The parabolic rise in the price of oil has produced an unprecedented and largely insidious transfer of wealth from the consuming to the producing nations of that oh so necessary commodity. The USA is the number one consumer nation; on the other side of the equation stand Saudi Arabia and Putin's Russia as the number one and two producing nations, respectively.
These nations and others such as China, accumulate vast hoards of dollars. In the very recent past the investment of these dollar caches was channeled largely to USGovernment securities. In other words, they lent the money back to us; we agreed to pay them interest on their investment, and guaranteed that their principal would be returned to them at the predetermined end of the loan. The investor nations had bought themselves nothing more than a stake in the continued prosperity of the USA. They owned nothing more than a "promise." And the continued growth of the US economy was as much in their interest as ours.
But now SIF investments are being diversified into vehicles other than USGovernment bonds; and no longer are confined to merely lending money. Now SIF are purchasing assets. In and of itself, these acquisitions of US assets present no particular problem. If a Saudi "prince" wants to buy Rockefeller Center, who cares? If the UAE SIF scoffs up the MGM Grand in Vegas, let 'em.
Would it make a difference, however, if we woke up one morning to discover that Rockwell International was now under the control of KGB-Russia? Or Boeing was owned outright by the House of Saud? The financial industry is as important to US national security as is the arms manufacturing industry.
And what these bailouts of Wall Street's grandest names means is that slowly but surely the ownership of our private financial apparatus is slipping out of the hands of Americans and into the sweaty palms of nation's whose vital interests are not necessarily congruent with those of the USA.
SIF--and their cousins, super-wealthy sheiks, sultans, emirs--have already participated in the mouth-to-mouth resuscitation required by Citigroup, Morgan, Stanley, UBS, Merrill Lynch and who knows how many other mega investment banks in the US and abroad.
The rescues have taken the form of these SIF injecting large amounts (billions of dollars) into the trouble institutions by purchasing equity stakes--ownership stakes--in them.
The parabolic rise in the price of oil has produced an unprecedented and largely insidious transfer of wealth from the consuming to the producing nations of that oh so necessary commodity. The USA is the number one consumer nation; on the other side of the equation stand Saudi Arabia and Putin's Russia as the number one and two producing nations, respectively.
These nations and others such as China, accumulate vast hoards of dollars. In the very recent past the investment of these dollar caches was channeled largely to USGovernment securities. In other words, they lent the money back to us; we agreed to pay them interest on their investment, and guaranteed that their principal would be returned to them at the predetermined end of the loan. The investor nations had bought themselves nothing more than a stake in the continued prosperity of the USA. They owned nothing more than a "promise." And the continued growth of the US economy was as much in their interest as ours.
But now SIF investments are being diversified into vehicles other than USGovernment bonds; and no longer are confined to merely lending money. Now SIF are purchasing assets. In and of itself, these acquisitions of US assets present no particular problem. If a Saudi "prince" wants to buy Rockefeller Center, who cares? If the UAE SIF scoffs up the MGM Grand in Vegas, let 'em.
Would it make a difference, however, if we woke up one morning to discover that Rockwell International was now under the control of KGB-Russia? Or Boeing was owned outright by the House of Saud? The financial industry is as important to US national security as is the arms manufacturing industry.
And what these bailouts of Wall Street's grandest names means is that slowly but surely the ownership of our private financial apparatus is slipping out of the hands of Americans and into the sweaty palms of nation's whose vital interests are not necessarily congruent with those of the USA.
Friday, March 14, 2008
Bear, Stearns and Future Ticking Timebombs
One of Wall Street's most aggressive--and admired--firms got their booties saved today by actions taken by the Federal Reserve System acting in conjunction with JP Morgan Chase Bank.
On the Street, once the other firms lose confidence in a firm's ability to perform on its trading commitments, most of which are made by two people from two firms talking on the telephone--no written contracts--the suspect firm is doomed. Who's going to make deals with a firm they may be out of business before the trade even "settles?" Nobody.
The Street lost confidence in Bear, Stearns (BS) and other firms would no longer trade with them.
BS is BIGTIME, the second largest player in mortgage-backed securities, next to Lehman Brothers. BS could not be allowed to wither up and die, not without a fight.
So the Fed used its most powerful and rarely employed tool--which I won't describe in detail here--to give the boys over at Bear at least a 28-day extension of their existence.
Of course, the poor slob who is about to have his house taken away by foreclosure gets no such individual attention. He either pays-up or gets the boot. He can fail; Bear, Stearns can't.
Yes, the scenario reeks of unfairness. Yet it is justifiable in a macro-economic sense.
The real problems are that the BS-bailout is unlikely to save the firm from extinction, merely to delay it; and that the Fed has found itself in a position of having insufficient data to accurately anticipate what is yet to come from the Depression in the Housing Market.
This Depression has been apparent to those in the real estate biz for quite some time. Yet the Fed could not seem to even see, yet alone connect, the dots that inter-relate the housing market and the explosion in shaky mortgage-backed securities to the rest of the economy.
The Fed believed to problems could be "contained" within the housing market itself, much like Saddam's ambitions to rule the entire Middle East could. The Fed was wrong. The Fed slept as the housing market collapse extended its tentacles to other sectors of the economy.
Now we have Time bombs waiting to explode all over the economy, particularly in the Banking/Finance sector. BS is small change compared to what lies ahead.
On the Street, once the other firms lose confidence in a firm's ability to perform on its trading commitments, most of which are made by two people from two firms talking on the telephone--no written contracts--the suspect firm is doomed. Who's going to make deals with a firm they may be out of business before the trade even "settles?" Nobody.
The Street lost confidence in Bear, Stearns (BS) and other firms would no longer trade with them.
BS is BIGTIME, the second largest player in mortgage-backed securities, next to Lehman Brothers. BS could not be allowed to wither up and die, not without a fight.
So the Fed used its most powerful and rarely employed tool--which I won't describe in detail here--to give the boys over at Bear at least a 28-day extension of their existence.
Of course, the poor slob who is about to have his house taken away by foreclosure gets no such individual attention. He either pays-up or gets the boot. He can fail; Bear, Stearns can't.
Yes, the scenario reeks of unfairness. Yet it is justifiable in a macro-economic sense.
The real problems are that the BS-bailout is unlikely to save the firm from extinction, merely to delay it; and that the Fed has found itself in a position of having insufficient data to accurately anticipate what is yet to come from the Depression in the Housing Market.
This Depression has been apparent to those in the real estate biz for quite some time. Yet the Fed could not seem to even see, yet alone connect, the dots that inter-relate the housing market and the explosion in shaky mortgage-backed securities to the rest of the economy.
The Fed believed to problems could be "contained" within the housing market itself, much like Saddam's ambitions to rule the entire Middle East could. The Fed was wrong. The Fed slept as the housing market collapse extended its tentacles to other sectors of the economy.
Now we have Time bombs waiting to explode all over the economy, particularly in the Banking/Finance sector. BS is small change compared to what lies ahead.
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